Market Watch – November 2023

November, 2023

The Federal Reserve Holds Interest Rates Steady For The Second Time
As has been discussed in prior Market Watch issues, the Federal Reserve does not set the interest rates that
borrowers pay on mortgages directly. Its action does, however, influence them significantly. Mortgage rates tend to
track the yield on 10-year U.S. Treasuries, which move based on a combination of anticipation about Fed actions,
what the Fed actually does, and investors’ reactions. When Treasury yields go up, so do mortgage rates; when they
go down, mortgage rates tend to follow.
With the latest inflation report, the yield on the 10-year Treasury fell. And on November 15, investors priced in a
99.7 percent chance that the Federal Reserve will hold interest rates steady in December. So, mortgage rates
dipped to 7.44 percent on November 16, down from 7.5 percent week earlier, but still significantly higher than the
6.61 percent rate the same week a year earlier.
The good news is that rates do have room to fall further. According to Bright Multiple Listing Service Chief Economist Lisa Sturtevant, the normal spread between the 10-year Treasury yield and the 30-year fixed rate mortgage
historically was 180 basis points (past Market Watch issues went into this in detail). Right now it is 280 basis points.
So, if the spread returned to its historic norm, mortgages could fall to 6.4 percent.
Ms. Sturtevant also noted that while she expects rates will come down in 2024, they will not return to pandemic
levels. “We are in a new era for mortgage rates, where prospective home buyers can expect rates to settle above 6
percent”, Ms. Sturtevant said.
But even in that scenario, the market should see inventory increase and more buyers coming into the market.

National Association Of Realtors (NAR) Chief Economist Lawrence Yun Provides His Take On The Market
At the 2023 NAR NXT conference in Anaheim California on November 15, Lawrence Yun indicated that elevated
mortgage rates, high home prices and limited housing inventory have dominated the story lines for the real estate
market in 2023. He stated that “Twenty-year high mortgage rates have held off home buyers. There’s also a lack of
housing inventory to sell, which means fewer opportunities for sales in the marketplace”. However, this lack of inventory has kept prices stable and in many areas, including Bridgewater, rising.
He agreed with the assessment of Ms. Sturtevant above, saying with the 10-year Treasury at 4.4 percent, mortgage rates could hover around 6.4 percent with the normal spread.
Mr. Yun believes that the 30-year mortgage and Fed funds rate have likely crested. He stated, “I believe we’ve
already reached the peak in terms of interest rates. The question is when are rates going to come down?” Mr. Yun
forecasts that interest rates will drop to between 6 and 7 percent by the spring buying season and anticipates that
more sellers will enter the market. He stated that “Pent-up sellers cannot wait any longer. People will begin to say,
“life goes on. Listings will steadily show up.”
The same will hold true for buyers. Lower rates could bring home buyers off the sidelines. 2024 could be a great year for the real estate market.